1988 (6) TMI 12 - HC - Income Tax

Summary

Issues:
1. Validity of reassessment proceedings under section 147(b) of the Income-tax Act, 1961.
2. Deductibility of the sum paid for purchase of loom hours as revenue expenditure in the computation of business income.

Analysis:

Issue 1: Validity of Reassessment Proceedings
The case involved a reassessment under section 147(b) of the Income-tax Act, 1961, for the assessment year 1959-60. The Income-tax Officer reopened the assessment due to discrepancies in the original assessment where depreciation and extra shift allowance were wrongly claimed on looms that were sealed and not operational during the relevant year. The Officer also found that the amount paid for the purchase of loom hours was incorrectly treated as revenue expenditure in the original assessment. The Appellate Assistant Commissioner upheld the reassessment but annulled the withdrawal of depreciation allowance based on a circular. The Appellate Tribunal affirmed the Assistant Commissioner's decision, leading to an appeal to the High Court. The Court, citing the decision in Empire Jute Co. Ltd. v. CIT, held that if the expenditure for loom hours was on revenue account, the initiation of proceedings under section 147 would lack jurisdiction.

Issue 2: Deductibility of Purchase of Loom Hours
Regarding the deductibility of the sum paid for the purchase of loom hours, the Income-tax Officer treated it as a capital expenditure, considering loom hours as an intangible asset forming part of the profit-making apparatus of the company. The Officer viewed the right to use loom hours as a capital advantage, constituting fixed capital assets. The Appellate Assistant Commissioner, however, found the addition made during reassessment to be a mere change of opinion and annulled the reassessment on this ground. The High Court, relying on the decision in Empire Jute Co. Ltd. v. CIT, answered the second question in favor of the assessee, stating that if the expenditure was on revenue account, reassessment proceedings would lack validity.

In conclusion, the High Court declined to answer the first question on the validity of reassessment proceedings as the second question's answer resolved the matter. The judgment was in favor of the assessee based on the deductibility of the sum paid for the purchase of loom hours as revenue expenditure, as determined by the Supreme Court precedent.